Flickr image by tpholland
I'm pretty convinced every time an analyst opens his or her mouth about Apple and we post it, a kitten is eaten by a bear somewhere*. This week's "Wacky Analyst Random Rumormongering" comes from Jefferies analyst Peter Misek who claims that Apple is about to launch "a new far reaching cloud-based service" based on video. Oh, really? Let's examine the reasons why we are visiting fantasyland, shall we?
At least Business Insider was so bold as to say this is "informed speculation," although that's pretty much what these analysts do, isn't it? Unfortunately, the speculation appears to have happened in a brushed-aluminum vacuum chamber, where Apple is capable of setting terms with media companies and ISPs at-will, and everyone works in a completely ego-free marketplace -- but none of those things are true in reality. Besides, the "streaming media" speculation has been around ever since this data center had a concrete foundation.
Misek claims the data center is going live soon and that Apple will build others around the world. Plus, he says this data center is "too big" for mere music. Well, we knew the data center would go online this spring, since Apple told us all this in a quarterly earnings call. The part about building more around the world is pure speculation. Apple uses Akamai for caching, so why bother with more data centers so soon? It's possible, but I see no evidence considering how long it took to build this data center. Then again, Apple Retail has had a meteoric rise... As for the thing being "too big" for video, what about software services? This isn't just about storing petabytes of data, this is also about uptime, scaling and keeping monstrous amounts of data intact. You know, like email and calendars and possibly office documents.
Misek goes on to claim that Apple has likely learned from having Netflix on Apple TV and that it's in a position to offer Hollywood a deal similar to what it offers app developers. Misek apparently lives in a world where Hollywood is as desperate as a guy in his basement hammering out the latest Twitter app. Unfortunately for Apple, Hollywood has been increasingly leery of deals that cut into their profits and direct reach to the consumer. Check out how Hulu and Boxee have been at it for years. Witness the paltry launch partners Apple's video efforts have yielded in the past couple of years. While iTunes is a great delivery mechanism for music and apps and movies, it's a much different digital media landscape these days than it was when the iTunes Music Store launched, and even when the App Store launched. Did Misek miss all the subcription-based media policy changes and the debates around those? While Apple may have a lot of cash, so does Hollywood, and media companies have wised up to Apple's strategies. No way they are going to make another media king out of Apple as the music industry did with iTMS.
Similarly, Misek speculates that this will be a bag of hurt to cable companies and "wireless networks." Really? Citing Viacom's reaction to the Cablevision and Time Warner apps, he notes that media companies may be working directly with Apple. This shows some ignorance as to how TV programming is negotiated and delivered. For one thing, there's very little to be gained by alienating the people providing the pipes where all your content is delivered -- not to mention all your apps! The bigger picture is that we're talking about hundreds of individual providers here, from niche channels like DIY and Food Network to larger premium channels like HBO. Does anyone really think Apple is going to trick all of them into forgoing their own digital distribution strategies and just "giving it up to Apple?" These deals are remarkably complex and deal with territories and so much more that simply assuming Apple has managed to out-negotiate Netflix, Cablevision and Time Warner is absurd.
Misek makes a few more "out there" claims, like Jobs will be leaving Apple soon, and thus he wants to revolutionize video. Call me crazy, but I don't see "make sure 'Sixteen and Pregnant' can be viewed on iPads for a monthly fee" is at the top of Jobsy's priority list.
Lastly, Misek makes a few erratic claims, asserting that margins on this type of thing are low, but that Apple's expertise in supply chain management gives it an advantage. Also, having this versus Android's de-centralized media approach is a compelling consumer bullet point. Well, first of all, Apple isn't big on the low-margin stuff, and I'm guessing the Apple TV is doing well enough on its own (why would another piece of hardware be necessary?). Plus, Apple already has video available for purchase or rent, so it already has that advantage over Android.
Here's the bottom line: Apple would have to make this deal impossibly sweet to Hollywood and somehow placate the cable companies it would cut out of the deal, despite the fact that the bulk of its customers would be receiving this media through those same providers. Apple makes magical products, perhaps, but is there such a thing as a magical deal memo? All of this seems to hinge upon one analyst who can't fathom what a huge data center could be used for other than video. Those of us who have stepped foot in data centers or managed server farms will tell you: there's a lot more to servers than throwing data at a wall.
I would say a more likely use for the North Carolina data center is any one of the things I wrote about a few weeks ago. MobileMe services, online iWork services, FaceTime, better iTunes store reliability, etc. To extrapolate a series of enormous challenges overcome due to the footprint of a new data center seems a stretch. But this is what we've come to expect from analysts, and it is why we view their claims with such skepticism. I'm not saying Apple doesn't want to stream video, nor am I saying the market doesn't want it. But with all things Apple, speculation is practically meaningless until we have more information. At this time, anything is possible.
*We love kittens and would never knowingly harm one.